Sunday 1st October, 2006

 

Beware of the grey market

 
 
 
 
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In Brazil there is the “grey market”. This informal market is made up business entities which evade taxes, skirt compliance, infringe copyright, disregard safety and environmental regulations, and produce inferior goods. They account for 40 per cent of gross national income.

If a grey market is allowed to grow here, it will mean that those workers will have no health benefits, no pension plans, little leave entitlements and no full time jobs.

Studies indicate that some 55 per cent of the workforce in Brazil is employed in the informal sector. It is reasonable to assume that they will retire on welfare or what we call old age pension. This would happen here if we encourage this grey sector.

Contract work is a typical example of a sector in which compensation benefits are minimal, and construction workers are a large part of this sector locally. There does not appear to have been academic or statistical studies done locally to determine the level of compliance, and the effectiveness of the various insurance policies in place to cover workmen’s compensation, contractors all risk and public liability claims, among contractors.

The experience is that there are no health benefits or pension plans for such workers. The experience, also, is that such contract workers are in receipt of a relatively large pay cheque.

But without trade union support, these same workers are unlikely to institute any consistent savings plan for retirement, their children’s education, or even contingencies.

What complicates matters is that many of them work long hours, through weekends, and have little time for reading or attending seminars.

Many of their life insurance policies lapse, often because they do not have work every month, and many lack the discipline to ensure minimum balances in bank accounts. So, non payment of premiums, beyond the grace period, results in loss of the policies.

But these workers need help. I think the bankers have a wonderful opportunity to help them. Perhaps a bank account that holds a minimum balance to ensure the salary deductions can be met over the period of no work is a useful device.

Alternatively, small systematic savings in mutual funds, or non registered annuities which allow access to periodic disbursements, will go a long way in assisting the stabilisation of these workers, over the medium to long term, from a financial perspective.

Contract workers have been ignored for too long, and if the economy is being propped up by a contract sector, then serious thought must be given to the future of such contributors to the national economy.

Barring a national policy, individuals will just have to educate themselves to take the initiative.

So if you know someone in this situation, that person will have a group of associates also in the same situation, and they will need some help.

Let us as a concerned citizenry reach out to them in our communities.

As happened in Europe and Japan, failure to help them take proactive measures will only mean higher taxes for the rest, and less social security for those who actually contribute.

Your guess about the size of the work force involved in contract work, whose pay envelopes escape NIS deductions—a basic social security contribution— is as good as mine.

How long will it take to clean up the compliance systems, and hire the manpower to enforce equitable legal address, is another guess. The simplification of the tax regime and tax return data, announced in the last two budget speeches, is a step in the right direction.

But, as the old saying goes, when your neighbour’s house is on fire, wet yours. Continued next week.

 

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